ETF Trends
ETF Trends

In the exchange traded fund industry, a growing number of money managers and new fund sponsors are turning to alternative or smart-beta indexing methodologies to gain an edge in an increasingly competitive market.

According to Mark Makepeace, who runs the FTSE Russell index group, smart beta strategies make up about 60% to 70% of requests for new products from clients, reports John Authers for the Financial Times.

A growing number of clients are turning to their index providers, capitalizing on the growing team of exerts in quantitative finance to develop strategies that eschew traditional market capitalization methodologies.

“Can I create an algorithm to be Warren Buffett? No,” Baer Pettit, head of index strategy at MSCI, said on Financial Times. “But over time, can I do a lot of what he does systematically? Maybe. You can at least avoid the same things that he avoided.”

According to Create-Research, a recent survey of international fund management found that smart beta makes up about $300 billion in assets, or 18% of assets in U.S.-listed equity ETFs, and many expect the number to grow.

Among the first to proliferate in the space, Research Affiliates, which was founded 10 years ago and developed the FTSE-RAFI index, has created a number of products based off standard market-cap FTSE indices but gave them a twist by selecting securities on other factors, such as sales, earnings and dividends.

Additionally, other popular smart-beta index-based ETFs screen component holdings based on factors like dividend yield, low volatility and momentum, or popular investment styles typically found in actively managed fund portfolios.

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